Petronas ups its resilience

Capex reduced by 21% and opex by 12% to cope with pandemic

PETALING JAYA: In dealing with volatile industry conditions, Petroliam Nasional Bhd (Petronas) has revealed measures to strengthen its resilience to weather the downward cycle in the oil and gas industry caused by the Covid-19 pandemic.

To ensure the long-term plans are not derailed and to preserve Petronas’ future sustainability, it is looking at preserving cash and maintaining its liquidity while continuing its cost compression efforts and responding to changing market conditions.

For the first quarter ended March 31, the group recorded a revenue of Rm59.6bil, a 4% decrease from Rm62bil in the same period last year, mainly attributable to the impact of lower average realised prices recorded for LNG, petroleum products and crude oil and condensates.

It said in a statement that the decrease was partially offset by the impact of higher sales volume mainly for petroleum products, coupled with the effect of the weakening ringgit against the US Dollar exchange rate.

Following the collapse in global oil prices, Petronas has decided to cut its spending for this year both for new field development and its operations.

Yesterday, the national oil company cut its 2020 capital expenditure (capex) budget by 21% and slashed 12% of its operating expenditure to cope with a big hit for 2020 due to the coronavirus (Covid-19) pandemic.

President and group CEO Tan Sri Wan Zulkiflee Wan Ariffin hinted that a bigger capex cut will be for Petronas’ overseas operations.

“We will strive as far as practically possible to minimise the impact to our domestic capex programme,” he said in a video on its website following the group’s first three-month financial performance. Earlier, Petronas said it had allocated about Rm26bil to Rm28bil in capex for its activities in the Malaysian waters for this year, which is higher than last year.

In total, Petronas, which has operations in more than 20 countries, has allocated about Rm50bil in capex for both the local and overseas markets for this year.

Petronas joins other global major oil companies that had announced their spending cut earlier last month.

In April, Reuters reported that cuts announced by Saudi Aramco, Exxonmobil and Royal Dutch Shell came to a combined Us$38bil (Rm168bil), or a drop of 22% from their initial spending plans of Us$175bil to cope with the disruption in demand due to the Covid-19 crisis.

Petronas said its cash flows from operating activities for the first quarter of 2020 has decreased by 24% to Rm17.6bil as compared to a year ago, mainly due to a lower cash operating profit and net negative working capital changes partially offset by lower taxation paid.

“Against this challenging backdrop, our focus is to preserve cash and maintain our liquidity, continue our cost compression efforts and respond to changing market conditions with pace,” Wan Zulkiflee said.

For the first quarter ended March 31, Petronas posted a 68% slump in profit to Rm4.5bil from Rm14.2bil in the same period last year, due to asset impairment and lower prices of LNG, petroleum products and crude oil.

Excluding impairment charges, Petronas’ profit totaled Rm9.2bil.

Petronas said it is operating in “unprecedented” market conditions driven by a combination of severe demand destruction due to the Covid-19 pandemic and the global oil market glut, which are testing the resilience of oil and gas (O&G) players globally.

“The board expects that the overall financial year performance will be significantly affected by these factors,” it said.